Trading Range Remains In Force
The
tight-trading-range market continues.
We repeat what was said last week:
Watch
these key levels for breakouts above resistance or below support in two or more
of the three indexes before getting too excited in either direction:
Dow – 11425-10420; S&P –
1340-1200; Naz
– 2350-1990. Until we get some
decent volume and some breakouts or breakdowns in two or more major indexes
above or below these levels, don’t get too excited or too heavily allocated.
A look at the numbers from our stock
lists tells a similarly mixed story that is nothing to get excited about yet. New
Highs vs. New Lows on our RS/EPS lists were
32/16, 16/6, 14/8, 15/16 and 23/5 — new highs have now taken over slight
dominance but were not yet above 20 consistently. Continue to watch for something real —
like days of new highs or new lows on our lists above 50 daily and above 100 a time or two
each week again before becoming eagerly bullish or eagerly bearish. There
were only 10 breakouts on the upside to new highs of stocks on our Top RS/EPS
New Highs list with no close calls and four breakdowns on the downside of
four-week-plus consolidations on our Bottom RS/EPS New Lows list, with a couple
of close calls that were not in weakest industries and sub-groups.
Close calls are stocks almost meeting our criteria that broke out of sound
bases. The environment thus remains not yet
nearly optimum on the long side or the short side.
Our
overall allocation is still relatively DEFENSIVE with 8% short and 22% long and the
remaining 70% in T-bills awaiting new opportunities. Our model portfolio followed up weekly in this column ended 2000 with
about an 82% gain on a 12% maximum drawdown, following a gain of around 41%
the prior year. For year 2001, we
are now up about 4.3%, with a mostly cash position.
For
those not familiar with our long/short strategies, we suggest you review my
10-week trading course on TradingMarkets.com, as well as in my book “The
Hedge Fund Edge” and course “The Science of Trading.“
Basically we have rigorous criteria for potential long stocks that we
call “up-fuel,” as well as rigorous criteria for potential short
stocks that we call “down-fuel.” Each day we review the list of new highs on our “Top RS and EPS New
High list” published on TradingMarkets.com for breakouts of four-week or
longer flags, or of valid cup-and-handles of more than four weeks. Buy trades are taken only on valid breakouts of stocks that also meet our
up-fuel criteria. Shorts are
similarly taken only in stocks meeting our down-fuel criteria that have valid
breakdowns of four-plus-week flags or cup-and-handles on the downside. We continue to buy new signals and sell short new short signals until our
portfolio is 100% long and 100% short (less aggressive investors stop at 50%
long and 50% short). In early March
of 2000 we took half profits on nearly all positions and lightened up
considerably as a sea-change in the new economy/old economy theme appeared to be
upon us.
Upside
breakouts meeting up-fuel criteria (and still open positions) so far this year
are: International Game Tech
(
IGT |
Quote |
Chart |
News |
PowerRating) @57.95 (60.52) w/59 ops; and Wet Seal
(
WTSLA |
Quote |
Chart |
News |
PowerRating) @37.02
(33.9) w/31 ops. We now
have booked profits on two of our four longs since the April lows and locked in profits via trailing stops
on all but one position.
Continue to
watch our NH list and buy flags or cup-and-handle breakouts in NH’s meeting our
up-fuel criteria — but continue to add just two per week and only in leading
groups.
On
the downside, this year we’ve had breakdowns from flags (one can use a down
cup-and-handle here as well) in stocks meeting our down fuel criteria (and still
open positions) in: DuetscheTelekom
(
DT |
Quote |
Chart |
News |
PowerRating) @20.3 (20.8) w/21.5 ops.
Continue to watch our NL list daily and to short any stock meeting our
down fuel criteria (see 10 week trading course) breaking down out of a downward
flag or down cup-and-handle. Here
too, remain cautious by only adding two shorts in a week, until we get
more consistency in the number of downside breakouts in a given week off of our
Bottom RS/EPS New Lows lists.